Intel Corporation (INTC) And TSMC Capex To See Potential Upside

Intel Corporation (NASDAQ:INTC) and Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) (TPE:2330) are both scheduled to report their December quarter earnings on Thursday, January 16. The companies will also kick off the 2014 capex announcements. Stifel analyst Patrick J. Ho said in a research note to investors that their capex announcements will create a positive trend for this year. Intel Corporation (NASDAQ:INTC) and TSMC are both expected to increase their capital expenditures. Ho said that the companies may even increase their expenditures further after all is said and done.

Intel’s capex to remain flat this year

Stifel estimates Intel Corporation (NASDAQ:INTC)’s capex at ~$11 billion, almost similar to 2013 levels. There were reports that the Santa Clara-based chipmaker may reduce its capex. But that seems unlikely because Intel Corporation (NASDAQ:INTC) is committed to strengthening its process technology leadership. The company’s capital expenditure levels are expected to remain high as Intel Corporation (NASDAQ:INTC) ramps its next-gen 10nm and 14nm nodes.

According to Seeking Alpha, increasing capital expenditure will push up depreciation. That may increase cash flow and reduce earnings going forward. But when Intel Corporation (NASDAQ:INTC) cuts capex in the future, FCF will jump. Intel Corporation (NASDAQ:INTC) is going aggressively after tablets aggressively, and it has necessary resources to compete in this business.

TSMC may indulge into arms race

For Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) (TPE:2330), Stifel estimates capex in the range of $10-$10.5 billion. That’s slightly higher than last year’s projected capex of $9.5-$10 billion. The Taiwanese company is likely to keep producing 28nm devices this year. Therefore, the company won’t be able to reuse tools from 28nm node to 20nm. Furthermore, Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) (TPE:2330) has made significant progress in 16nm FinFet node. Therefore, the company may need to boost its production, which will require further capital investment.

GlobalFoundries and Samsung Electronics Co., Ltd.(ADR) (LON:BC94) (KRX:005930) may also increase their capex in 2014, as they may feel threatened by TSMC’s progress in 16nm node. Stifel expects GlobalFoundries to increase its capex by 50% YoY. Samsung Electronics Co., Ltd.(ADR) (LON:BC94) (KRX:005930) had a muted year cap-ex-wise in 2013. Patrick J. Ho expects the Korean giant to spend aggressively in its foundry/logic division. This ongoing “arms race” may also prompt TSMC to increase its capex further.